Europe slips into double-dip recession
Some optimism despite wide lockdowns
BERLIN • With swaths of Europe still under lockdown restrictions and a stuttering vaccination rollout, the region’s economy slid into a double-dip recession in the first quarter of the year, in contrast to a rosy outlook in the United States.
The European economy shrank by 0.6 per cent in the first quarter of the year, according to data released Friday. The U.S. economy grew by 1.6 per cent over the same period, amid massive federal stimulus spending and a speedy vaccination rollout.
Export-dependent Germany, which had already been heading toward recession before the pandemic as manufacturing dropped off, saw its economy shrink by 1.7 per cent, the most in Europe. The economies of Spain, Italy and Portugal also contracted.
Slow with its initial vaccine rollout, much of Europe is battling a third wave of coronavirus infections. Germany has a nighttime curfew in place in 15 of its 16 states, and shopping requires booking appointments and getting a negative test.
But analysts said the picture may not be as bleak as it seems — vaccinations are picking up across the continent, and Europe is well positioned to bounce back as it has largely avoided the large-scale job losses that the United States suffered.
“Despite the serious health situation, the economic fundamentals remain promising,” Alexander Boersch, chief economist and head of research for Deloitte Germany, wrote in a research note Friday. “Labour markets are still robust and the unemployment rate in the Eurozone has not increased, thanks to ongoing policy interventions, such as furlough schemes.”
That has left disposable incomes largely intact, he said, adding that business sentiment remains surprisingly high. France defied expectations with economic growth of 0.4 per cent in the first quarter.
The risk, Boersch said, is that countries in Europe fail to bring the pandemic under control and companies go out of business. But vaccination programs have picked up in recent weeks, with Germany now vaccinating more than 900,000 people a day. It is aiming to vaccinate all adults that want a shot by the end of June, ahead of a promise to do that by September.
But while the prospects look better for European countries, some on the peripheries might have more problems springing back. Tourism-dependent countries such as Greece, Italy and Spain could suffer more lasting pain from lockdowns, according to a recent analysis from ING Bank.
The European Union is in the process of finalizing a plan for a so-called “vaccination passport” system, to allow some tourism to return this summer. But normalcy still appears some way off.